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December, 2001 Newsletter

+++++++++++ December 1, 2001 +++++++++++++++++++

Introduction: Market Stabilizes
Mortgage Rate Update: Rates Begin to Rise
Recent Site Updates: Home Buying Timeline
This Month’s Tip: Winning at Negotiation


Welcome to the December edition of the Home Buyer’s
Information Newsletter.
Activity in the housing market has seen a noticable
increase in the last few weeks, rebounding from the
slowdown that followed the events of September 11th.
Although activity has not returned to late summer
levels, activity is normally a bit more restrained
during this time of the year–both holiday and
weather related. It probably will be early in 2002
before we get a clear picture of the trend for the
next year.

A couple of observations: Most of the buying activity
centers on well-maintained and well-priced homes. Those
houses that are marginal or priced over-market, are
having a tough go. This does contrast a bit with the
situation for most of 2001, when virtually any house
found a buyer in a short period of time. In addition,
pricing appears to be a bit more realistic. This
definitely works in favor of current buyers, since
it cuts down on many of the “bidding wars” where buyers
overpaid for homes, often paying 5-10% or more over a
realistic value.

Mortgage Rate Update: Rates Begin to Rise

With indications that the recession may not be as long
nor as deep as originally indicated, mortgage rates
have begun a slow rise in the last month. According
to mortgage company Freddie Mac, 30 year fixed rates
have climbed from a low of 6.56% on November 1st to
the current average of 7.02% as of November 29th.
15 year fixed rates currently stand at 6.53%. (Any
points are in addition to these average rates).

The future rate outlook is, to a large degree,
dependent on economic reports from November, December
and the full 4th quarter. There are considerable
variations in estimates for economic activity,
employment and GDP, which means that predicting the
trend of mortgage rates is even more difficult than
normal. Current rates, however, are at one of the
lowest levels in over 20 years, so being concerned
about a 1/4 point move in one direction or another
can be counterproductive.

For current average mortgage rates, see: Mortgage Rates
For more information on mortgages, visit the Mortgage  Section at:  
Mortgage Information

Recent Site Updates: Home Buying Timeline

Many buyers have questions about the timeline of
purchasing a home. When should we begin to look
for a home? How much time will be needed for the
mortgage process? When should the closing
arrangements be made? We have a general timeline
which can help with your planning available at: Home Buying Timeline

LendingTree Mortgages
LendingTree MortgageIn this volatile financial and interest rate
environment getting as many loan comparisons as
possible is crucial. At Lending Tree you can submit
one simple loan request form and within a few business days
get up to 4 bona-fide offers from lenders competing for your business.  
Get more information here.

This Month’s Tip: Winning at Negotiation

Time-wise, the actual price negotiation is one
of the shortest periods of buying a home (often only a
day or two) but it is one of the most crucial. Without
a selling price that satisfies both you–as the buyer–
and the seller, much of the work done previous to
selecting a specific home–mortgage comparisons and
applications, finding an Agent to work with, researching
neighborhoods, seeing individual homes and finding one
that fits your needs and wants–may be wasted. Without
a valid contract (a purchase agreement) signed by both
the seller and the buyer, the up-front work you do on a
particular house will likely be in vain.

Which means that you must be able to negotiate an acceptable
agreement, one that meets the requirements of both you,
as buyer, as well as those of the seller. The more effective
you are in negotiation, the easier the entire home buying
process will be.

Some buyers get so caught up in “winning” the negotiation
game, though, that they forget that it must be a win-win
situation, both from the buyer’s point of view as well as
from the seller’s.

Why do a number of transactions get bogged down (or lost
completely) in negotiation? Simply because, to some degree,
common sense often tries to fly out the window when the contracts
and pens hit the table. Emotion often takes control of both
buyer and seller and emotional (instead of factual) negotiations
almost always run into snags.

From the buyer’s perspective, there are several barriers that
need to be hurdled in order to have a common-sense approach to
negotiations. First, there is always the possibility that
you have found yourself looking at too much home. No matter
how much you may wish it, or try to cut it, a $200,000 home will
never fit into a $150,000 home budget. (This is one reason why
it is so crucially important to get pre-qualified and pre-approved
for a mortgage loan prior to beginning your home search.) By
looking at houses beyond your budget range, you may try to
make a home “fit” with an absurdly low offer, but the odds of
reaching the contract stage in these situations are extremely
small. Plus, when you are forced to “retreat” to the correct
price range, you often find that the homes just don’t seem
to match up with the more expensive ones you have been looking at,
which can be frustrating. See the section devoted to
pre-qualification and pre-approval:   Prequalifation and Preapproval

Bad advice often is another cause of negotiations that seem to
go nowhere. Somehow, a lot of buyers have gotten the notion that
you NEVER want to offer more than 90% of the listing price of a
home. If the housing market in your area is depressed, this
approach may have some validity, but in active markets (such as
we have seen almost everywhere in the last 2 years or so) this is
terrible advice. There are no rigid parameters when it comes to
pricing a home–each and every property stands on its own. Some
may be under priced, others priced “right on the money” and others
overpriced. A buyer’s offer should be based on how a particular
home fits into the average price range of similar homes in the
same area, not on erroneous “advice.” See the section on
Comparative Market Analyses (CMAs) at: CMAs

Sometimes, a buyer’s insistence on a concession can get in the
way of–or even stop–negotiations. Occasionally egos come
into play–“no one pays the full listing price!” which is fine
when a home is overpriced, but can cost a buyer a perfect home
if the home is priced correctly–or worse, if it is underpriced!
If a property is priced right, meets all your needs and wants,
and is otherwise desirable, don’t let insistence on a $500 price
concession cost you the home. Remember, too, that if interest
rates rise 1/4% while you are trying to save a little money on
the price, the increased interest costs over the life of the
loan will cost much more than your potential price savings.

From the seller’s perspective, bad information is often the
biggest barrier to smooth negotiations. You may hear “Why,
the Davis house sold for $135,000 and ours is MUCH nicer.
Of course we want $150,000!” (The facts: The Davis house
was listed for $129,000 and actually sold for $127,000).
As a buyer, arming yourself with an up-to-date Comparable
Market Analysis (CMA), showing the actual sale prices of homes
in the neighborhood, can counter this misinformation quickly
and easily.

Sellers will also block common-sense negotiations when they
are too much “in love” with their house. They may want to demand
a premium in price for the memories that they cherish from their
time in the home–something of absolutely no value to the
buyer! The way to counter this is simple: Be understanding but
insist that the facts (the CMA) must determine the real value
of the home, not emotion.

The reality of the marketplace means that fair negotiation takes
in a number of factors. The CMA, the overall condition of the
home, market conditions–either good or bad–in the area,
even current mortgage rates. Homes that bring the highest
prices are those that are in sync with the CMA, in good
condition, being sold in an active Real Estate market. Those
that are more likely to bring lower prices through negotiation
are homes that need some (or a lot of) work and are being sold
in depressed markets. To ignore these realities usually
results in disappointment, aggravation or both.

Additional Hints on Negotiations:

* Remember that contracts are legally enforceable documents.
Offers to purchase should not be taken lightly, since they
can become binding contracts with a quick stroke of the
seller’s pen. More information: Offers

* Get everything in writing.
Every offer and counteroffer must be in writing to be binding.
Until the entire contract is in writing and signed by both
buyer and seller, any negotiations are little more than
conversation. It can be disheartening to find out that your
verbal “commitment” has been overridden by another buyer
with a written–and legal–contract. More information: Contracts

For a general discussion of negotiating, see: Negotiation

As always, if you have suggestions for improving the
site, or topics you would like to see addressed in
this newsletter (or, if you have used the Home Buyer’s
Information Center to successfully purchase a home),
access our feedback page at:
Home Buyers Information Center Feedback

A special thanks to all those who have written to let us know
that they have found the Home Buyer’s Information Center a
helpful resource in their buying process.
Have a great Holiday Season and good luck in your home buying process!

The Team at the Home Buyer’s Information Center